With calls for an inquiry into alleged impropriety associated with its now-failed merger plan with Tribune Broadcasting still being heard, the last 12 months haven’t exactly been stellar for Sinclair Broadcast Group.
Yet, SBGI hasn’t exactly withered on Wall Street. This led a Wall Street observer to see whether Sinclair might be an attractive investment prospect.
With a 1-year target estimate of $36.60, Sinclair shares are hanging in there.
After a late July 2018 dip, precipitated by FCC Chairman Ajit Pai‘s now deal-dooming communique that assigned Sinclair’s proposed merger with Tribune to an Administrative Law Judge in a Hearing Designation Order, Sinclair shares have not fluctuated wildly.
Like many media companies, a pre-Christmas swoon brought Sinclair shareholders a lump of coal, as the stock price — like the thermometer in Central Park on Monday (1/21) — sank. For SBGI, a $25.22 low was seen.
Since then, Sinclair has been on a rebound of sorts, and opens Tuesday’s trading at $30.44.
Neil Montgomery of Simply Wall St. noticed this, and calculated Sinclair’s Return on Capital Employed to gain some insight.
Using an “ROCE” formula, Montgomery arrived at the following:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
Or, for Sinclair Broadcast Group:
0.089 = US$480m ÷ (US$6.6b – US$601m) (Based on the trailing twelve months to September 2018.)
Sinclair Broadcast Group has an ROCE of 8.9%.
For Montgomery, Sinclair Broadcast Group’s ROCE is around the 8.2% average reported by the media industry.
But, Sinclair has total liabilities of $601 million and total assets of $6.6 billion. As a result, its current liabilities are equal to approximately 9.1% of its total assets.
“With low levels of current liabilities, at least Sinclair Broadcast Group’s mediocre ROCE is not unduly boosted,” Montgomery says. “If performance improves, then Sinclair Broadcast Group may be an OK investment, especially at the right valuation.”
